Monday, February 7, 2011

Dumb and Dumber: The Folly of Taxpayer Handouts for Professional Sports

Governor Dayton wants funding for a new Vikings stadium and bond for a new St. Paul Saints Stadium. Mayor Rybak wants money for the Target Center. All told the taxpayer or public support for these projects is well in excess of $1 billion.

Should we do it? Are these subsidies good economic development tools? The simple answer is no. American public policy is cloaked in many myths. There are many ideas recycled from government to government over time with little thought given to the evidence supporting their empirical assumptions or their prospects for success. Like bad meals that repeat on a diner, or a vampire who never dies, these ideas too are recycled and never seem to go away. This is the case with public subsidies for professional sports teams. While it makes no sense to provide bailouts to sports billionaires in general, doing so when Minnesota is $6.2 billion in the hole and it has other pressing needs is even dumber.

Does it make sense for a city or community to fund the construction of a new sports stadium in order to stimulate economic development? Listening to sports reporters, team owners, and many elected officials, the answer is "yes." Yet, while it may be fun to root, root, root, for the old ball team, does it make economic sense for the public to provide tax dollars to pay, pay, pay to for new stadiums? What are the facts and what do we know about the impact of sports stadia on economic development and urban revitalization? The overwhelming evidence is that the public use of tax dollars for a sports stadium is economically inefficient and a bad investment that produces no real net economic benefit to a community. In short, giving money to building stadia is simply sportsfare—welfare for sports.

In general, as one surveys local debates about stadium construction in the United States, three basic arguments are employed to support using public money to build sports stadia. First, proponents claim that building a new stadium will have a big impact on the economy, generating many new jobs and bringing new businesses to the area. However study after study has demonstrated that advocates of public spending on stadia consistently exaggerate the benefits of sports to a local economy.

A 1996 Congressional Research Service (CRS) report, “Tax-Exempt Bonds and the Economics of Professional Sports Stadiums” (Zimmerman 1996) concluded that sports stadia represent a small percentage (generally less than 1%) of a local economy. It also stated that there is little real impact or multiplier effect associated with building sports stadia. By that, if one looks at the economic impact of the dollars invested in sports stadia, the return is significantly smaller than compared to other dollars invested in something else.

Moreover, the building of stadia merely transfers consumption from one area or one type of leisure activity to another, and that overall, sports and stadia contribute little to the local economy and instead represent an investment that costs the public a lot while failing to return the initial investment. Dollar for dollar, the opportunity costs of investing in sports stadia is a terrible option if the goal is economic development, job development, or producing new economic development in a community. In short, the nearly $3 billion in sports subsidies it documented produced little, at the cost of over $120,000 per job.

Literally hundreds of other studies and books by individuals such as long-time sports economists Arthur T. Johnson in Minor League Baseball and Economic Development (1995), Mark Rosentraub in Major League Losers (1997), Kenneth Shropshire in The Sports Franchise Game (1995), and Roger Noll and Andrew Zimbalist in Sports, Jobs, and Taxes (1997), and Michael N. Danielson in Home Team (1997) reach the same conclusion—public support of professional and minor league sports is a bad investment. In practically none of the cities these studies examined did new sports stadia lead to any significant new private investment or provide for any significant economic benefits to the local economy besides the jobs generated by the initial capital construction of the stadia. More importantly, the new stadia generally were not even profitable or self-financing. Nor could cities point to rising land prices or economic development in the surrounding community. Even as tourist attractions, the stadia either simply transferred sales from somewhere else, failed to demonstrate that the local hotels were filled as a result of the sports events. Finally, in terms of the much ballyhooed job production, outside of initial construction and the salaries for the players themselves, part time, seasonal, and no benefit beer and peanut sales jobs were the fare for what the billions of public dollars produced.

A second claim to support public investment in a stadium is that keeping a sports team is necessary to ensure that one remains a first class city. Would the Twin Cities of Minneapolis and St. Paul (which the State Legislature voted in 2006 to authorize a sales tax worth upwards of $300 million for a new stadium) or any city be any worse off by losing a sports team? Without a sports team, most cities would still have parks, museums, zoos, arts facilities, good neighborhoods, schools, and the general quality of life that separates first and second class cities from one another and suburbs.

Moreover, if one accepts this logic of sports being necessary to make a city first class, can we say that New York City became second class when the Giants and Dodgers fled for California in the 1950s, or that Los Angeles became second class when it lost the Angels to Anaheim or the Rams to Saint Louis? The answer is obviously no.

Professional sports are only one small piece of what makes a city first class. Moreover, professional sports are also only a small part of the local entertainment puzzle with many consumers often transferring their consumption to other forms of entertainment, including amateur sports, if pro sports are not available. Similarly, sports are even a smaller piece of the local urban economic pie such that its presence or absence is not significant in the face of other features in a thriving and diverse urban area. In addition, with the cost of attending sports events so high, often approaching or exceeding $200 per game for a family of four, many sporting events are no longer an affordable family entertainment option. Instead, sports owners look to other corporate interests to buy tickets, thereby making sports an aspect of a city’s first class status that is beyond the reach of most of its residents.

Finally, advocates for a publicly-funded stadia say that such funding is necessary to maintain owner’s profits. The issue here is not profitability, but the level or amount of profits the owners want. They want to make more money and who is to blame them for that desire. However, there are a couple of different issues here. First, many owners say that larger stadia with more seats are necessary if they are to make more money. To support that, owners often trot out attendance figures to show declining profits.

Attendance figures tell only part of the story since they are only a small part of the revenue stream for owners. Revenue from luxury sports boxes, corporate sponsorship and ads, television and radio contracts, and promotions make up a far bigger and more profitable part of what owners receive from their sports adventures. Yet even this money is not enough because owners often claim they are not making as much money as other owners and thus, building a new stadium is a key to upping their profits. Clearly the end result of this “keeping up with the Jones” logic is to constantly push up the average profitability of all sports teams such that there will always be some teams below the average demanding financial assistance.

Moreover, professional sports is free enterprise. It is about competition and winning and losing. It is about private initiative and not public handouts. If teams cannot make it on their own then they should move or close down much like any other business would.

Overall, while communities may choose to invest in sports facilities because of the cultural amenities they offer, doing so for economic development reasons is another stupid public policy and political myth that deserves to die. It makes no sense to Minnesota tax dollars on professional sports handouts. This is just dumb and dumber.

3 comments:

Not liking the tone here at all. It comes off as smug and condescending. as I mentioned in a previous comment: calling people stupid isn't usually the best way to persuade them.

As to your arguments:1. Economic development. Reasonable point that it's unlikely to expand the tax base and "pay for itself". And it's absolutely true that those entertainment dollars spent on football will likely just be spent in other ways. (Whether they'll be spent here is another question I don't have the answer to; will the number of people who travel here for a game be balanced out by other spending? Will more people here spend that entertainment $$$ by travelling to the team's new location?) But good stadium development can be a driver for revitalization of an urban area by serving as a destination magnet. Or do we really believe Target Center didn't have anything to do revitalization of the warehouse District?

2. "First-class" city: bad examples. NYC still had the Yankees (easily the dominant team) when the Giants & Dodgers de-camped...60 years ago? the Angels played in LA for 5 years as an expansion team when they moved down the road to Anaheim (not really that far) and the Dodgers were already well-established. The Rams are a better choice, but note that they moved to a city that had LOST a pro football franchise. But again...it's comparing the Twin Cities to LA, which isn't a great comp.

3. Profit argument. Fair point again, but your backhanded shot about competition is unrealistic and disingenuous. As if communities and states never subsidize private industry!

You may not agree with it, but professional sports teams are considered in many ways to be a public good (in Green Bay it's more literally a public good; should they not spend public money to renovate the facilities there either?). You treat the cultural impact and importance as a topic of little importance or note, which is one of the reasons that football fans get so angry with anti-stadium forces. economists kinda suck at valuing the secondary & trinary economic impacts of professional sports in a broader community, and so they discount them almost completely (you admitted this to me once yourself!).

I'm not fairly neutral on the stadium issue. While I'd love to skip public investment in it, I recognize the usual practice and have a little more respect for teams as community and cultural institutions, as well as the fact that stadiums like the Dome have additional utility beyond just use as a football field. I'm hoping that if a deal happens it won't be an outrageous give away.

But the conversation about it tends to be really negative and combative and does little to convince anyone of anything. Pro-stadium folks tend to want to do anything that will keep their team (while often hypocritically seeking to avoid personally paying more) and hang the consequences. Anti-stadium folks tend to be highly dismissive to the merits of professional sports, often incredibly insulting and demeaning to fans.

As a former student, I have to say I agree with most of what John says in his rebuttal. I am disappointed in the tone of this article. You are such a respected and intelligent professor, you can win on the merits of almost any argument you make. I don't think you need to devolve into Fox News editorials.

I'll hand you the economic argument. I've read the pieces that you cite, and I personally believe that the economic impact of a sports stadium is not measurable.

As a progressive, isn't there something to be said for community identity? Let's talk about the Top 5 things that identify Minnesotans as Minnesotans. While it is different for everyone, our local sports teams would rank up there if we polled everyone. For me, it's the Twins, Vikings, Mosquitos, Snow, and the U of M. Do you support Congress cutting funding of NPR? It has no 'economic effect', but it has a public good and people rely on it. The legislature recently put $20M into the renovation of a theater in Minneapolis. What about general funding of the arts? I am not "high-class" when it comes to arts and entertainment. It seems to me if we, as progressives, are going to defend NPR, theater, and the arts through public funding; than the funding for public stadiums falls into the same, or similar category.

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About Me

Professor in the political science department at Hamline University where he teaches classes in American politics, public policy and administration, and ethics.
Schultz holds an appointment at the University of Minnesota law school and teaches election law, state constitutional law, and professional responsibility.
He has authored/edited 30 books, 12 legal treatises, and more than 100 articles on topics including civil service reform, election law, eminent domain, constitutional law, public policy, legal and political theory, and the media and politics.
In addition to 25+ years teaching, he has worked in government as a director of code enforcement and for a community action agency as an economic and housing planner.